GREENSBORO — Even at their best, Medicaid and health care reforms seem like a complicated mess.

Throw in years of questionable state software projects, damning audits and one of the most complex pieces of federal legislation in history — President Barack Obama’s health care overhaul is intrinsically tied to Medicaid — and the whole thing becomes nigh impossible to follow.

The bottom line of the past few weeks is that the Republicans in control of the N.C. General Assembly and the governor’s mansion have decided not to cooperate with two key elements of the president’s reforms.

Instead of partnering with the federal government on new health insurance exchanges, which for users will seem a lot like a travel website for insurance, state leaders will let the federal government handle it alone.

And instead of expanding Medicaid to cover an estimated 500,000 additional people, they simply won’t, leaving many North Carolinians without health insurance and saving the federal government billions of dollars.

For those who want a deeper understanding, we’ve tried to lay things out below. For you true policy wonks out there: This is not absolutely everything you need to know to run Medicaid and health care reform. For the rest of you, this will more than get you started. Embrace the acronyms. Keep patience at hand. Dig in.

The basics

Medicaid is government health insurance. It mostly covers children, the disabled and poor senior citizens. It costs about $14 billion a year in North Carolina and helps roughly 1.6 million people.

The Patient Protection and Affordable Care Act passed Congress in 2010 and survived a U.S. Supreme Court test last year.

Well, it survived for the most part, but more on that later. It’s sometimes called ACA, or just health reform. You’ve also heard it called, derisively or not, “Obama­care.”

And expansion is ...

One of the keystones of the ACA was a massive expansion of Medicaid eligibility.

Current Medicaid eligibility is complex and differs from state to state. In North Carolina, it’s rarely available to single people, even if they make very little money and don’t have insurance. The ACA law told states to expand Medicaid to cover anyone younger than 65 who makes less than 138 percent (or 133 percent — depending how you calculate things) of the federal poverty limit.

For a single person, that’s a little less than $15,000 a year. For a family of four, it’s a little less than $31,000. People older than 65 are eligible for Medicare, which is separate from Medicaid. Others above the 133/138 percent line would be expected to have health insurance through an employer or to qualify for taxpayer-subsidized insurance through the new health care exchanges.

In North Carolina, this expansion would add an estimated 500,000 people to Medicaid, and it was supposed to be mandatory. But the Supreme Court made it optional, and a number of Republican-controlled state governments have declined expansion, pulling away an underpinning for health reforms they don’t like.

Page 2 of 6 - The federal government would pay for 100 percent of this expansion for the first three years, starting in 2014. Then the state would have to pick up 10 percent. North Carolina leaders have said they are worried about a bait and switch — that the federal government might shrink its contribution, leaving the state to pay more.

Plus, taxpayer money is taxpayer money, and the federal government is $16.5 trillion in debt. In the eyes of Americans for Prosperity, a group that advocates spending cuts and no new taxes, North Carolina Republicans are heroes for turning down federal funding.

State AFP director Dallas Woodhouse called them “a shining example” last week of “the fiscal stewardship that we need.”

Why not expand?

North Carolina liberals are aghast that the state has turned down federal funding to give health insurance to 500,000 people.

Doctors and hospitals are concerned, too, because many of the people who would have received Medic­aid turn up in emergency rooms, get care and never pay. That means other people’s bills go up accordingly.

More than one left-leaning policy analyst called expansion a “no-brainer,” and a number of other states with Republican governors plan to expand.

But Gov. Pat McCrory and his health and human services Secretary, Aldona Wos, whose department oversees Medicaid, say the state’s entire Medicaid system is broken. The biggest issue is technology, and the state has been working for years to replace a billing system called the “Medicaid Management Information System,” or MMIS.

It hired Affiliated Computer Services to overhaul the system in 2004, but after delays, the state canceled that contract at a cost of about $16.1 million. It hired Computer Science Services instead, but that project is running two years behind, and the contract nearly doubled to $494 million, according to a January 2012 state audit.

McCrory and Wos have expressed concerns that although the new system is scheduled to go live July 1, it won’t. Meanwhile, Hewlett-Packard, which the state has been trying to replace since 2004, runs the state’s old MMIS, which the federal government considers out of date.

It’s a big operation: HP has about 140 employees in the Raleigh area to handle $800 million in claims each month.

Until these issues — and others we’ll deal with in a moment — are cleared up, McCrory has said the state can’t handle expansion.

Disconcerting audits?

Yes.

State Auditor Beth Wood released an audit in July 2012 that said various efforts to identify Medicaid fraud using software had come up short. Officials with the N.C. Department of Health and Human Services said the effort was preventing fraud just by existing, though they acknowledge that recovering fraudulent payments is difficult.

Last month, Wood’s office said North Carolina’s Medicaid program has significantly higher administrative costs than other states. Those costs are spread across 11 divisions, the audit found. It also found overspending in the Department of Health and Human Services.

Page 3 of 6 - But the audit was limited. Wood and her staff acknowledged they didn’t have time for a full review of the nine states they used for comparison on administrative costs. And DHHS staff and Democrats openly complained about unrealistic Republican spending targets in the Medicaid budget.

Some also noted that North Carolina had the lowest average annual growth in Medicaid spending in the country from 2007 to 2010, the most recent data available from the Kaiser Family Foundation, which tracks that information. And Carol Steckel, the new head of the N.C. Division of Medical Assistance, said last week that some of North Carolina’s recent Medicaid reforms have served as a model for other states.

There’s one more audit at issue, though. Last week, Wood documented nearly $581,000 in inappropriate overtime payouts to DHHS employees working on the Medicaid billing overhaul.

Everything affects everything

The Medicaid billing system is called MMIS, and doctors and hospitals submit claims to it for payment. But as health care reform takes full effect next year, another program will determine whether people are eligible for Medicaid or whether they need to look to the exchange for insurance.

That program is called N.C. FAST, and there are concerns. The program is now used to determine food-stamp eligibility in some counties, including Guilford. It’s expanding to all 100 N.C. counties.

In Guilford County, the move to N.C. FAST caused delays in food stamp distribution because data had to be typed into the system for all 45,000 households that get food stamps in the county. A social services employee has to go through 31 steps for each entry, said Steve Hayes, the county’s director of family and children’s services. Once that’s done, the system works well, Hayes said, but the changeover caused a backlog.

The goal is to use N.C. FAST for Medicaid eligibility as well as other government charity programs, making it a one-stop shop of sorts. Eventually, instead of people having to visit a Division of Social Services office routinely to renew their food stamps and other benefits, “we could put a kiosk in the grocery store,” Hayes said.

A pilot program to add Medicaid to N.C. FAST is scheduled to start later this year, Hayes said. The state had hoped to spend more than half of a $74 million grant it received recently from the federal government to work on N.C. FAST and other DHHS technology, which it will eventually tie in to the new health insurance exchange.

But because North Carolina won’t be involved in the exchange, that money will apparently be sent back to the federal government. McCrory and legislators hope to get some federal money for N.C. FAST, though, and requested it as part of the bill that blocks Medicaid expansion and opts out of the exchange.

Page 4 of 6 - What exactly is an exchange, anyway?

Think about it like a travel or used-car website: It will be an online marketplace where you compare and buy insurance, except it’s the most complicated website you’re ever likely to visit.

It has to check your income and citizenship to determine eligibility. It will have risk-analysis capabilities to keep individual insurance companies from getting overloaded with costs. It will be backed by actuarial studies and other analyses specific to various states and regions because insurance costs and other factors vary across the country.

At least, it’s supposed to. About half the states have told the federal government they won’t build their own exchanges or help with hybrid systems, leaving the federal government to do it alone. North Carolina is likely to join that group soon.

But they’ll still be ready on time, right?

According to the U.S. Department of Health and Human Services, absolutely. People in every state will have a working exchange come Oct. 1, when open enrollment begins for the new system, a department spokesman said Friday.

Others are cynical. Officials with the N.C. Department of Insurance said they’ve put this question to federal officials repeatedly and been told, repeatedly, that things are on schedule.

Adam Linker, a health policy analyst who supports ACA reform and worked on North Carolina’s exchange preparations, said there has been a lot of progress. But his confidence is “certainly not 100 percent.”

National policy wonks have deeper concerns. Things simply haven’t gone as federal officials expected, said Ray Hanley, a former chairman of the National Association of State Medicaid Directors.

“They did not, in their wildest dreams, think so many states were not going to do (exchanges),” Hanley said. “Standing up Texas alone is monumental.”

This stuff is expensive

The behind-the-scenes costs of health care reforms are big and getting bigger.

As of Dec. 31, the federal government had spent at least $18.3 billion nationwide to implement the ACA law, according to the Kaiser Family Foundation. Of that, $377 million had been spent in North Carolina.

The federal exchange is being built by CGI on a $93.7 million contract, according to the U.S. Department of Health and Human Services. Another company, QSSI, got a $58.3 million contract to build the related “data services hub,” which will interact with exchanges and Medicaid systems to verify income, citizenship and other information.

North Carolina has received roughly $18.4 million in federal grants to prepare for the ACA, not including the $74 million it’s likely to return because it won’t develop a state or hybrid exchange. Some of that money went to contracts with these groups:

Milliman Inc. for actuarial studies: $260,250.

N.C. Institute of Medicine for various analyses: $426,803.

Page 5 of 6 - Public Consulting Group for an evaluation plan and grant application help: $689,330.

Some of those totals represent multiple contracts, and the final costs may be lower than the potential maximum listed, according to the N.C. Department of Insurance.

Federal ACA money has also gone to the N.C. Department of Health and Human Services ($3.77 million) to supplement staff in the state’s Office of Information Technology Services ($584,920) and for the Department of Insurance itself.

The department also hired 23 employees, with an annual salary total of nearly $1.2 million, to deal with ACA issues, it said in an email.

Oh, and the IRS is involved

In an effort to collect names and contact information on the petition to “Stop Obamacare in North Carolina,” Senate President Pro Tem Phil Berger has been telling people the government will be “turning our health records over to the IRS.”

That’s not correct, according to a number of reviews.

The Internal Revenue Service will, however, collect forms from insurance companies that say whether people have health insurance. The IRS will collect a penalty tax from those who don’t.

Are there unintended consequences?

There may be quite a few. But the decision to reject Medicaid expansion is a particular concern for rural areas.

The cash infusion from expansion was supposed to replace other federal funding streams, including disproportionate share payments that go to rural hospitals. That money — which totals hundreds of millions a year in North Carolina — will be phased out under the ACA reform.

It would be a huge loss for rural hospitals, which is why state Rep. David Lewis, R-Harnett, was the only Republican legislator to vote last week against blocking the expansion. Lewis said he’s against the expansion, but he wanted to call attention to the problem for rural hospitals.

Was there a good reason to do all this?

Roughly 48.6 million people in this country don’t have insurance, according to the U.S. Census Bureau, and that’s the core problem that Medicaid expansion and other ACA reforms were meant to address.

Roughly 1.5 million of those people live in North Carolina. Some 500,000 of them would have been covered by expansion.

Rejecting it leaves them without insurance because they’ll fall through the cracks between existing government programs, existing private insurance options and the coming subsidized insurance plans offered through the exchanges, according an N.C. Institute of Medicine report.

The state would also miss out on $1.3 billion to $1.7 billion in annual increased domestic product and as many as 25,000 new jobs in health care and other sectors by 2016, the report says.

Page 6 of 6 - Republican leaders have questioned some of this analysis, but their primary arguments are that the current Medicaid system is broken and that the country can’t afford to so heavily subsidize health care.

“North Carolina’s Medicaid program can’t manage the 1.6 million people it is already supposed to serve,” Berger, R-Rockingham, Berger wrote last week.